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Making the tax system fair

23rd Mar 2016
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Iain Duncan Smith’s principled resignation was an interesting move for a political party not necessarily famous for their solidarity with the underclass.

Indeed, under Thatcherite umbrella the rich should be encouraged to get a great deal richer, and in doing so, they would drag the less well-off along in their wake with the result that overall the economy would benefit.

Poor George Osborne has been made to look like something of a fool by following this well-trodden path at a moment when one of his colleagues was spoiling for a resignation and the fight.

On the surface, Duncan Smith’s stand might inspire admiration from onlookers - but it’s a little more complex than that. He has broadly made two suggestions as I understand it.

First, the cuts to welfare for the disabled should not go ahead. That’s fine, how can anybody object?

It’s Duncan Smith’s second argument that seems empty: He has suggested that it was adding insult to very little injury to raise the threshold for higher rate tax at the same time.

Making people pay higher rate tax when they are earning less than £45,000 is not in the best interests of society. It’s doubtful that anyone who lives in the south-east would believe that a salary at this level is acceptable, let alone high.

The recent political upheaval leaves us with a large budgetary gap to fill. There must be numerous perfectly good ways of doing this. My favoured route would be to increase the top rate of tax for those earning over £150,000 (perhaps even a touch higher at £175,000) and set that at whatever rate was needed to make up the shortfall.

There’s no reason why a 50% or even a 60% rate would be unacceptable to the vast majority of the populace, including many Tory voters.

If that is deemed unacceptable by Mr Duncan Smith, Mr Osborne or the latter's successor, perhaps increasing VAT to the maximum level permitted by European legislation (or a higher level of our own choosing after June) on luxury goods might fit the bill just as well.

If nothing else, that will allow us to relish a tremendous debate about what constitutes a luxury good. To start the ball rolling, what about cars costing over £30,000, anything purchased from a jeweller and 4K TVs.

It’s likely that Duncan Smith’s stand (or tantrum, depending on your view) will lead to several more resignations. Probably not a departure from Europe, but considerable instability as Exchequer scrabbles around to fill that black hole.

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By Knight Rider
24th Mar 2016 14:54

Thatcherism

The Great lady knew that a"rising tide lifts all ships" and that if people are too heavily taxed they will leave.

Let's not have high complex taxes with rafts of exemptions that encourage the talented into highly paid tax planning adviser roles but low simple taxes that are not worth avoiding.

To fill  the black hole we could simply leave the EU and abolish housing benefit (which is just a subsidy to wealthy landlords). We don't need any new taxes.

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By John49
24th Mar 2016 15:35

Root & branch reform is needed.

If, as I hope, we leave the EU, then there will be an opportunity to simplify and modernise the way we are taxed. The problem is, we don’t have politicians brave enough to do it.

In my view all indirect taxes are iniquitous and unfair. Why should a pensioner on a miserable £10k a year pay the same tax on a gallon of petrol as the owner of Harrods?

Everyone should be taxed on their income, not on their spending. Of course income tax rates & corporation tax rates would have to rise, but what was left would be worth far more in real terms.

Perhaps with our exit from the EU VAT should be dumped, and a move back to something like the old Purchase Tax considered, taxing only luxury items, not every day necessities.

Also there is something immoral about our current system.  The government has set the “living wage” at around £280 a week. The government has also stated it’s intention to raise personal allowances to £12,000, or around £250 a week, before you pay tax.

Therefore the government is clearly signalling that you need around £250 a week tax free to live on, yet, the same government seems content to pay pensioners and the disabled about £150 a week . Therefore the government is deliberately keeping those who cannot work through no fault of their own in poverty. Morally that is indefensible.

Could the above be done?  Possibly not, but we certainly should be working towards it by abolishing or lowering indirect taxes, increasing pensions and disability payments, and seeking to make taxes fairer.  

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By Knight Rider
24th Mar 2016 16:31

Indirect Taxes

The Qatari Investment Authority(Harrods owner) probably pays less tax on fuel than a pensioner. But that is not really the point: indirect taxes are voluntary- we can choose whether to pay them and they are usually easy to collect with most of the collection work done by businesses and individuals.

There is nothing 'immoral' about setting a living wage above the state pension - private provision is widely available and everyone has different requirements and expectations. Disability benefits are there to cover the extra costs of living not total living costs.

You are right that little can be achieved without leaving the EU - it is impossible to change the tax on tampons without seeking Jean Claude Juncker's approval!

 

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Danny Kent
By Viciuno
28th Mar 2016 15:40

.

Knight Rider wrote:

 You are right that little can be achieved without leaving the EU - it is impossible to change the tax on tampons without seeking Jean Claude Juncker's approval!

Dont forget that the current conservative government could also cut all funding to our farmers and renewable energy start ups, missing all renewable targets and destroying our world class growing industries.  

But why has this issue gained so much traction?   Morally I understand why.  Practically I do not.

Will the producers/retailers of said tampons pass on the savings to the consumers?  Or will they mearly rub their hands in excitement as they watch their profit margins increase?  I mean, the consumers were willing to pay the tax before to use the products - why would they not continue to do so in order to pay the bonuses of the managers in said company?

I can just imagine the board meeting "They were willing to pay £1.05 yesterday, with 5p going to the government -  so they will still pay £1.05 today, with the 5p going to us"

 

But back on point.  A £45,000 salary not alot of income? That is plently to live on.  You are not "dragged" into this tax bracket (as the new favourite politician sound bite goes) - you earn a significant amount of money and therefor should pay the tax on it.  You would be "dragged" into this bracket if the government decided to introduce a BIK on the heating you 'enjoy' at work, not because you get a pay rise. 

Maybe if the governemt spent significant amounts of money on building afordable homes, or attracting big businesses headquarters to somewhere other than central London this wouldn't be soo much of an issue.

There is a whole lot more unfairness in our current political system than the tax system, but I suppose its as good an issue as any to start at.  But why has it become the norm to think that we should continue to enjoy world class puplic services and start paying less and less tax.  Probally because people have become accustomed to living above their means - do you need a new car every 3 years?  Or a holiday abroad every year?  Or that £30,000 bespoke kitchen?  Probally not.  Yet some people think we should pay less tax so we can enjoy these things!

 

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By Knight Rider
29th Mar 2016 15:04

Affordable Homes

What exactly is an affordable home and why would anyone wish the Government (or anyone else) to build an unaffordable home?

As public services become more efficient we should enjoy the same level of service on lower levels of tax. I have often heard it said that we should pay higher levels of tax for improved services but that is not a choice that we have. Every day brings more stories about waste and profligacy within the public sector.

As for whether people live beyond their means - thats their business.

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By Discountants
30th Mar 2016 13:18

Affordable homes

We don't need affordable homes - we just need more homes.

Now would be a perfect investment opportunity for the government to borrow at 1.5% to build homes that it could expect a rental yield of at least 3% on.

Build enough of these for rent or sale and, due to the law of supply and demand, the massively high prices we currently have will come back down again.

To bring the market back into any sort of balance then house prices need to fall by between 30% and 50% - at those levels, relative to incomes, we would be back to the affordability levels of the 1980s and 1990s.

The young would gain, the long-term government finances would gain (the difference between the rent and the interest could be put towards all those old-age pensions needing to be paid), who would really lose out?

Those people who either bought when prices were more sensible and used equity withdrawal to finance their lifestyle and those who have streached themselves to breaking point to get on the property ladder. You know those people who are essential 'swing' voters which every party desperately needs in order to get elected.

Now you can see not only why we got into this mess but also why we seem to find it impossible to get out of it.

:(

On the original topic - as a share of national output taxation has not varied very much over the last 40 odd years (35% to 43.5%, averaging 39.2% and 39.6% last year)

Individual taxes have moved around (VAT is much more important now) but the total has not really moved very much

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